Copad SA v Christian Dior couture SA, Vincent Gladel as liquidator of Société industrielle lingerie and Société industrielle lingerie (ECJ (First Chamber); C-59/08; 23.04.09)

The ECJ has given guidance on Articles 7 and 8(2) of the Directive.

In 2000, Dior entered into a trade mark licence agreement with Société industrielle lingerie (SIL) in respect of the manufacture and distribution of luxury corsetry goods bearing the CHRISTIAN DIOR trade mark, which was owned by Dior.

Clause 8.2 of the agreement provided that, in order to maintain the repute and prestige of the CHRISTIAN DIOR trade mark, SIL agreed not to sell the licensed goods to inter alia wholesalers, discount stores, mail order companies and door-to-door companies, and to make all necessary provisions to ensure its distributors and retailers also complied with this requirement.

When SIL was faced with economic difficulties it asked Dior to waive this obligation and allow sales outside the selective distribution network. Dior refused this request. Despite the refusal and in breach of the contractual obligation, SIL sold goods bearing the CHRISTIAN DIOR trade mark to Copad, a company operating a discount store business.

Dior brought an action for trade mark infringement against SIL and Copad in the French Courts. The Bobigny regional Court found that the licence breach was a contractual matter and did not constitute infringement. On appeal by Dior, the Cour d’appel de Paris agreed, finding that the sales by SIL did not constitute infringement as the Clause 8.2 conditions of the licence agreement fell outside the specific provisions of Article 8(2), which, if contravened, permit a proprietor to invoke the rights conferred by a trade mark against a licensee. However, the Court also found that the sales had not exhausted Dior’s trade marks rights under Article 7(1). Copad appealed and Dior cross-appealed to the Cour de Cassation, which referred a number of questions on the interpretation of Articles 7 and 8(2) to the ECJ.

The ECJ ruled that the grounds laid out in Article 8(2) were exhaustive. This was because they were not preceded by an adverb or expression such as ‘especially’ or ‘in particular’ which would allow a finding that the listed grounds were simply guidance.

One of the grounds in Article 8(2) which allows a proprietor to invoke its trade mark rights is the breach by a licensee of any provision regarding the ‘the quality of the goods manufactured…by the licensee’. The ECJ ruled that the quality of luxury goods, such as the ones at stake, was not just the result of their material characteristics, but also of the allure and prestigious image which bestowed upon them an aura of luxury. Impairment of that aura of luxury would be likely to affect the actual quality of those goods. A selective distribution system ensures that the goods are displayed in sales outlets in a manner that enhances their value. It was conceivable that the sale of luxury goods to third parties not part of that selection distribution network might affect the quality of the goods. A contractual provision prohibiting such a sale would fall within Article 8(2) although it was a question of fact for the national Court whether the goods’ aura of luxury, and thus their quality, was affected.

In relation to the Article 7 questions, it was well-established case law that where a licensee puts goods bearing the mark onto the market he will, as a rule, be considered to be doing so with the consent of the trade mark proprietor for the purposes of Article 7(1). However, a licence agreement does not constitute the trade mark proprietor’s absolute and unconditional consent. Contravention of a provision in a licence agreement that is listed in Article 8(2) will mean that the licensee is putting the goods onto the market without the trade mark proprietor’s consent.

Article 7(2) provides that Article 7(1) does not apply if there exist legitimate reasons for the trade mark proprietor to oppose further commercialisation of the goods, especially where the condition of the goods is changed or impaired after they have been put on the market. The ECJ held that the use of ‘especially’ meant that the situations following it were only examples of legitimate reasons, and that damage done to the reputation of the trade mark may, in principle, be a legitimate reason for Article 7(1) not to apply.

The ECJ stated that a balance had to be struck between the trade mark proprietor’s legitimate interest in ensuring that the mark’s reputation was not damaged, and the discount store’s legitimate interest in being able to resell the goods in question by using methods customary to its sector or trade. In particular, it was necessary to take into consideration the parties to whom the luxury goods were resold and the specific circumstances in which they were put on the market. A contractual provision preventing certain resale of the goods could form the basis of an Article 7(2) objection only if, in the particular circumstances of the case, such resale damaged the reputation of the trade mark.